Dollar Index Hits a 2.5-Month High Amid Mixed Eurozone Signals
Manufacturing Survey Boosts Dollar While Euro Faces Pressures
The dollar index (DXY00) increased by +0.06% on Tuesday, reaching a fresh 2-1/2 month high. This rise was partly driven by higher Treasury note yields. Additionally, the October Richmond Fed manufacturing survey revealed a rise to a 4-month high, further bolstering the dollar’s strength. Comments from European Central Bank (ECB) officials, particularly President Lagarde and Governing Council member Rehn, pushed the euro down to a 2-1/2 month low, which also aided the dollar’s performance.
The US October Richmond Fed manufacturing survey climbed +7 to a 4-month high of -14, outperforming expectations that had predicted -17.
Market sentiments currently suggest a 92% chance of a -25 basis point rate cut at the upcoming FOMC meeting on November 6-7, while the likelihood of a -50 basis point cut stands at 0%.
EUR/USD (^EURUSD) fell by -0.13% on Tuesday, marking a new 2-1/2 month low. The euro struggled against the backdrop of disappointing Eurozone economic news, particularly the second consecutive monthly decline in new car registrations for September, which dropped -6.1% year-on-year to 809,000 units. The euro’s decline intensified due to dovish statements from ECB President Lagarde and member Rehn. However, supportive remarks from ECB Governing Council member Escriva, indicating that interest rates may remain elevated compared to pre-pandemic levels, mitigated some losses.
According to Lagarde, the path for interest rates in the Eurozone appears clear, as both inflation figures and wage growth show signs of stability. However, Rehn warned that the growth outlook has significantly weakened, potentially increasing disinflationary pressures.
On the other hand, Escriva emphasized that even though interest rates might decrease, they would remain higher than the levels observed before the pandemic or the war in Ukraine. Swaps indicate a complete (100%) expectation for a -25 basis point cut by the ECB at the December 12 meeting and a 47% chance for a deeper -50 point cut during the same session.
Turning to the yen, USD/JPY (^USDJPY) rose by +0.15%, as the yen lingered at a 2-1/2 month low against the dollar. Recent comments from Bank of Japan (BOJ) officials suggested caution regarding interest rate hikes, contributing to the yen’s struggles, further exacerbated by rising Treasury yields.
Swaps are currently pricing a modest 1% chance of a +10 basis point hike by the BOJ at its October 30-31 meeting, and a 20% likelihood for the same increase in December.
In the precious metals market, December gold (GCZ24) gained +20.90 (+0.76%), closing at a new contract high. December silver (SIZ24) climbed +0.963 (+2.83%). The increase in precious metals reflects ongoing safe-haven demand fueled by tensions in the Middle East and uncertainty surrounding the upcoming US presidential election. Anticipation of increased fiscal spending, regardless of the electoral outcome, has also strengthened gold’s desirability as a store of value. Additionally, purchasing activity from funds has helped push long gold positions in ETFs to an 8-1/2 month high. Nevertheless, prices for precious metals dipped from their peaks as the dollar index reached a 2-1/2 month high.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
